Dive Brief:
- The U.S. commercial real estate market should continue its "upward trajectory," particularly in smaller cities where inventory has not reached such tight conditions as to drive up prices considerably, according to the National Association of Realtors.
- Overall office vacancy rates are expected to fall 1.5% to 10.4% in the next year, as are industrial vacancies (0.7% decline to 8.7%), a response to strong employment and the accompanying need for space. However, as new apartment inventory hits the market, multifamily vacancies should grow 0.2% to 6.1%.
- NAR Chief Economist Lawrence Yun said that high commercial real estate prices should cool in the coming months and cautioned that "further tightening in credit standards" could hamper future building and leasing activity.
Dive Insight:
As far as the overall economy is concerned, Yun said that global instability and weakness has not damaged the U.S. but has perhaps kept the country from seeing impressive gains. "Only steady job creation, solid consumer spending and residential construction — albeit not enough of it — kept the economy afloat during the first half of the year," Yun said in a release.
Increased apartment demand will continue to propel multifamily construction, but Yun added that builders are transitioning to single-family home construction, which should slow multifamily growth slightly. In addition, the expected increase in apartment inventory in the coming months should slow rent growth and push vacancies even higher.
A report last week from the National Association of Home Builders indicated that the average multifamily unit size was almost at prerecession levels because of increased demand for rentals. In the second quarter, average unit size decreased from 1,247 square feet to 1,161 square feet. Right now, the share of for-rent apartment housing is 93%, well above the norm. However, the NAHB said that as the for-sale market share increases, the average size of a multifamily unit should rise as well.
Also last week, a Dodge Data & Analytics report said that a 20% increase in office starts helped to give the nonresidential commercial sector a 3% upward push. The company also reported that multifamily starts rose by 9%, outperforming single-family's 1% increase.